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Par MS Jay le 7 Septembre 2009 à 03:18
The Realization principle or the "revenue recognition" principle. In accrual-based accounting, revenue should only be recognized when it is earned, i.e. when you sell a product or perform a service only then should you recognize or record that revenue. It is related to the matching principle that requires revenues and associated expenses to be matched or recorded in the appropriate periods.
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Par MS Jay le 7 Septembre 2009 à 03:11
The Matching Principle is a fundamental concept of accrual basis of accounting that offset revenue against expenses on the basis of their cause-and-effect relationship. It states that, in measuring net income for an accounting reccord, the costs incurred in that period should be matched against the revenue generated in the same period. See also accounting concepts.
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Par MS Jay le 7 Septembre 2009 à 00:18Custom Search
The Materiality Concept
- Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions of users taken on the basis of the financial statements
- Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor
ILLUSTRATION
Company A bought 6 months supplies of stationery costing $600.
Question: Should the company spread the cost of this stationery for 6 months by expensing off $100 per month to the Income Statement ?
Answer : Based on this concept, as the amount is so small or immaterial, it can be expensed off in the current month instead of tediously expensing them for the next 6 months
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